The international community has been fighting money laundering and the financing of terrorism for some time. Combating money laundering has become an integral component of the financial sector, since it has the potential to threaten a country’s economic stability. There are three main priorities to address on an organizational level, which will be discussed throughout this article. To help regulate your company, working with a professional like Wiss & Company is a great way to structure your finances. Avoiding the exploitation of legal loopholes in accounting is a simple way to combat money laundering.
What is Anti-Money Laundering?
This involves the laws and regulations which the target trade of illegal goods, market manipulation, corruption of public funds, and tax evasion. Money solicited from illegal activities is cleaned by criminals when it runs through a series of steps, giving the illusion it was obtained legally. This involves devising a fake record of how money was earned to not arouse suspicion. Money can be laundered by running it through a legitimate, cash-based business. Other parties become involved with the process too, including brokers who break rules to earn larger commissions.
Large-scale tax evasion typically results in lower government revenue, less investment in health and education, and higher public debt. This creates economic inequality because vulnerable people are affected by a sharp reduction in social spending. By using the AML/CFT framework, breaking this economic cycle is realistic. The strengthening of the AML framework benefited Greece in desperate times of need, where hundreds of millions of euros were seized from tax crimes. Central banks can strengthen their financial supervision by complying with improving frameworks, resulting in better communication with financial intelligence units.
The Financing of Terrorism
It’s our responsibility to starve financial flows that enable terrorists to inflict suffering in communities. In 2014, Sudan was called on to strengthen their CFT framework. Targeted financial sanctions have been implemented that are consistent with the FATF standard. Practical guidelines are constantly being developed. Harnessing the power of financial technology is a great way to combat terrorism. It can be used as an influential tool to strengthen your defenses in the fight against evil.
Using Fintech To Combat Illegal Practice
Fintech allows us to identify financial flows, while machine learning can identify patterns of activity that would be difficult to detect otherwise. Fintech also safeguards against cyber-terrorism, because it’s less susceptible to a single point of failure. It therefore provides a resilient defense mechanism. Regulatory frameworks must remain adequate to successfully prevent the financing of terrorism. New framework continues to surface on the impact of technological innovation in the financial sector, which is allowing organizations to regain control.
How Else Can Companies Safeguard Against Money Laundering?
Financial institutions should investigate customers to ensure they’re not partaking in a money laundering scheme. Companies should comply with AML rules and regulations, in line with the Financial Action Task Force (FATF). This body has laid out the standards for fighting money laundering. Money laundering can harm the purchasing power of a country’s currency, which can erode the economy.
Maintaining Banking Relationships
Supporting countries that are at risk of losing banking services is a priority. Keeping these countries connected to the global financial system is a vital element of anti-money laundering. This is especially important for countries with small financial systems. There are many dimensions to consider, involving regulators, the affected countries, and the financial industry.
Better regulation will result in banks being more likely to maintain their banking businesses, greatly improving financial stability in affected countries. Improving the capacity of small banks to manage risks is a great starting point. Financial institutions have been using an AML compliance program too, a risk management solution that complies with legal initiatives. Focusing on the capacity of small banks to manage risks helps enhance communication between local and correspondent banks.
How Anti-Money Laundering Reduces Crime
Investigations often tie financial records with inconsistencies to perpetrators of criminal activity. Extensive records are kept to uncover the identity of criminals. By removing a criminal’s ability to launder money, the cash flows they rely extensively on are shut down. Funds which are recovered can often be returned to the victims of crime, as money that was laundered can be traced back to the source of embezzlement.